For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.
"My favorite conservative recommendation for 2008 is Kinder Morgan Energy Partners (NYSE: KMP)," says Elliott Gue, editor of The Energy Strategist.
"Kinder has four basic business lines: oil pipelines and terminals, carbon dioxide (CO2) pipelines, natural gas pipelines and refined products pipes.
"Refined products pipelines are among the most stable assets a firm can own. Typically, they're dedicated to servicing a particular group of refineries, and volumes tend to grow at a slow but predictable rate over time. In Kinder's case, this is a simple, fee-based business. The company owns the valuable Plantation Pipeline that carries refined products from Gulf Coast refineries to the Mid-Atlantic.
"And the company's Pacific Pipeline carries refined products west to California. The West Coast is one area of the US that's chronically short of refining capacity. Pipelines carrying refined products from the Gulf are the only way California keeps moving.
"Kinder also has a huge natural gas pipeline network. One of its key markets is the Rocky Mountains, a region that's been seeing rapid growth in gas production. Unfortunately, there's insufficient pipeline capacity in the Rockies to handle all the gas that's produced; that's why natural gas prices in the region tend to be far lower than in other parts of the US.
"But Kinder's pipeline network is helping to change that. The company has a new pipeline called the Rockies Express, one of the largest projects ever undertaken by any PTP. This $4.4 billion project will carry gas from the Rockies east to the Ohio-Pennsylvania border; the pipe will be completed in stages, with the first stage already complete and the second two phases scheduled for completion in 2008.
"This pipeline has already proven popular. Companies have already signed up for capacity even before the pipe is complete. As soon as gas starts moving, Kinder starts earning distributable cash.
"Kinder has a large slate of new projects scheduled to start up next year and throughout 2009. Already offering a tax-advantaged dividend yield nearing 7%, these new projects will power a distribution growth rate of around 8% annualized for at least the next five years.
"And based on current management expectations, Kinder will pay more than $4 next year in distributions, a more than 15% jump on this year's payout. Kinder Morgan Energy Partners rates a buy under $58."
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Reader Comments (Page 1 of 1)
12-29-2007 @ 7:49AM
Marion von Beck said...
KMP has become my largest single holding, because of some appreciation, dividend reinvestment, and selling part of a couple other winners. It made sense to me in early 2005 when I bought it, even though I am very well aware of Marathon with facilities in my "back yard. " At $52.62 I had 12.4% annualized gain. Held during the nearly flat times because of the dividend, and because of dividend increases. Originally influenced to look at it further because of coverage in Value Line. Seems well-managed. And now S&P has given it the best mark of 5 star.
So now we will have more growth, especially with the addition of pipeline. A good buy and hold play.
1-22-2008 @ 1:01PM
Ivan said...
I agree that KMP is a great investment. If energy goes up or down, KMP unitholders collect distributions as long as the pipelines are being used. However, this article does not discuss the tax implications for investing in a Master Limited Partnership (MLP). And the tax implications certainly affect how and if someone wants to invest in a MLP. I originally owned this in a regular brokerage account until I realized the Schedule K-1 required another 8-10 forms. It cost me about $200 more at H&R Block to complete the tax forms. So it also depends on how much you invest and if your tax expert knows how to deal with the Schedule K-1.